3 Questions VCs Ask When Getting Pitched By Startups

The funding tempo within the digital well being world appears to have stabilized up to now couple years. Startups on this area raked in practically $6 billion in the course of the first half of the yr, and 2024’s funding complete is anticipated to exceed final yr’s complete of $10.7 billion.

Throughout a panel dialogue held final week at MedCity Information’ INVEST Digital Well being convention in Dallas, three enterprise capital traders shared a few of the questions they ask when getting pitched by healthcare startups.

What drawback are you fixing?

It’s a serious purple flag when a startup can’t clearly clarify the issue it’s looking for to unravel, identified Tom Hawes, companion at Sandbox Industries and Blue Enterprise Fund.

“The factor that indicators that [a potential investment opportunity] is probably not fascinating is that if an entrepreneur simply says ‘I’ve a digital therapeutic’ or ‘I take advantage of blockchain’ — simply utilizing these buzzwords with out filling in what drawback they’re fixing. What job are they getting finished?” he remarked.

As an investor, Hawes mentioned he needs to listen to about the issue {that a} startup is making an attempt to deal with earlier than they begin explaining how nice the know-how is. He additionally mentioned the startup must reveal that its staff has the required abilities, expertise and community to unravel that drawback.

One other investor — Emily Durfee, director of company enterprise capital at Healthworx, the funding arm of CareFirst, a payer within the Mid-Atlantic area — agreed with Hawes, including that she additionally needs to guarantee that the startup is fixing a “high 5” drawback.

“I believe fairly a bit about not simply, ‘Is that this an issue that ought to be solved?’ but in addition, ‘Is that this a high 5 drawback for the client that you simply’re promoting to?’ As a payer, we get tons of of corporations that wish to be distributors for us. And there are most likely 30 issues that we ought to be fixing as a payer at any given time, however we would not have the mind area to do this,” Durfee defined.

As a result of payers aren’t capable of remedy all of those issues, they must prioritize probably the most urgent 5 or so, she mentioned.

“I ask each entrepreneur, ‘Is that this a high 5 drawback? For whom? Why do you consider that?’ And if they will’t reply that query, I’m not going to be investing,” Durfee declared.

Do you’ve any kind of fee-for-service cost mannequin?

Durfee believes that value-based care is the longer term — however she isn’t keen to spend money on corporations which are fully depending on that cost construction.

“We’ve talked to loads of corporations whose complete enterprise mannequin pitch is that they’re going to do value-based care. It’s not simply whether or not or not a startup is prepared and ready — however additionally it is whether or not their clients, typically payers, are ready to obtain and construction these contracts with them,” she famous.

Durfee “essentially believes” that value-based care is the longer term, however she can be conscious that the longer term has not absolutely arrived, she mentioned.

She identified that there are loads of payers that aren’t but able to construction value-based contracts for numerous affected person populations and specialties.

“I don’t actually spend money on any firm that doesn’t have a enterprise mannequin for normal fee-for-service. That’s to not say that I need them to remain there. That’s to not say that I don’t need us to maneuver in direction of value-based care. But when value-based care is a precondition for the success of the corporate, it’s going to be actually laborious to sway my thoughts,” Durfee remarked.

Is AI core to your enterprise?

AI isn’t the wonderful buzzword that some startup founders might imagine it’s. When a startup presents an AI resolution, they’re including a layer of danger to their enterprise, famous Janet Xu, senior principal at Distributed Ventures.

“Initially, is AI 100% necessary to your objectives? Second of all, how does that enhance your danger profile to the shopper that you simply’re making an attempt to serve proper now? As a result of your AI could also be nice, however then you definitely additionally must undergo an entire completely different degree of scrutiny due to the actual fact that there’s a lot of information coming out and in,” she defined.

With the intention to spend money on an AI-forward firm, Xu must be satisfied that the AI is integral to the product. She would additionally must know that the startup is conscious of the dangers concerned and has established the right protections for affected person information, she mentioned.